Massive subsidy to landlords needs a rethink.

Amultimillion-dollar subsidy flows each week to landlords around the country – and the amount handed over is growing quickly. But this isn’t private market capital gains. It’s taxpayer money.

Government data shows that there are now almost 370,000 people receiving the accommodation supplement – government assistance that can be used to pay private rent and mortgage commitments. The bulk of these are renters – in September last year, just under 50,000 people were receiving support for the cost of owning their own homes.

The accommodation supplement bill is increasing rapidly: It was just more than $37 million a week in the September 2020 quarter, up from $27.1m in the June 2018 quarter and is nearly twice what it was six years ago. It’s been described as the Government’s largest direct investment in private sector housing subsidies.

The amount you can qualify for varies. A single parent of two children, working full-time for $60,000 a year and paying $600 a week in rent in Birkenhead, Auckland, could receive up to $174 a week.

A major concern with the scheme is that it may primarily benefit landlords, who can charge higher rents knowing that their tenants have the ability to draw on the supplement to pay.

University of Auckland associate professor Susan St John said in 2019: ‘‘Accommodation supplement payments are directly linked to a recipient’s actual housing costs, so any increase appears to encourage landlords to increase rents.’’

She said the recipients couldn’t save money because if they shifted to a cheaper house, their supplement would drop.

A Child Poverty Action Group report said payments were made to up to 30 per cent of private sector tenant households and these payments covered the cost of approximately 10 per cent of estimated rents paid into the private rental market. ‘‘Thus the supplement represents a significant government subsidy of the private rental market.’’

Work by Motu in 2018 found that a 2005 change in Auckland resulted in just over one third of the supplement increase being absorbed by higher rents.

‘‘It is not possible to ascertain the extent to which these measured rent increases were the result of recipients being able to afford to spend more on housing (possibly leading to lower levels of crowding), or if the policy allowed landlords to increase rents (possibly due to increased housing demand).’’

Rents are rising quickly in many parts of the country, meaning the bill is likely to get bigger in the coming year. Average rents rose 11 per cent between when rents were unfrozen on

The supplement is so widespread that it’s impossible to unpick it.

September 25 and the end of 2020. The average rent rose 3 per cent in the month immediately after restrictions were lifted, according to Ministry of Business, Innovation and Employment (MBIE) rental bond data.

The supplement is so widespread that it’s impossible to unpick it. Its removal would leave a large number of households unable to pay their rent, and it could take a long time for the market to adjust.

But one benefit of the supplement structure is that it provides transparency about the portion of money that is being spent supporting people into housing.

The Government could focus on getting something in return for these huge sums.

Knowing the supplement bill is likely to continue to rise year on year as pressure mounts in the rental market, it could invest now in creating systems to stop that happening.

If it knows it will face another $10m a week in three years’ time, could it divert that money to other initiatives, such as build-to-rent schemes?

At the moment, the accommodation supplement is subsidising tenants into what is sometimes substandard accommodation. With a bit of planning and strategy, the supplement funds could deliver better outcomes for a growing renting population.

Susan Edmunds is Stuff’s business editor. She can be contacted at susan.edmunds@stuff.co.nz